Futures Trading Explained: Key Concepts to Know

Futures trading is more than predicting whether prices will rise or fall. Understanding margin and risk management is essential.

Here are the key concepts:

Long vs Short: A long position benefits from rising prices; a short position benefits from falling prices.
Contract Specifications: Lot size, contract size, expiry date and price tick define the contract.
Initial Margin: Funds required to open a futures position.
Mark-to-Market (MTM): Daily settlement of gains and losses.
Maintenance Margin: Minimum balance required to keep a position open.
Margin Call: A demand to add funds when your margin falls below the required level.
Variation Margin: Funds paid or received to cover changes in a futures position’s value.
Rollover: Closing an expiring contract and opening a later-dated one.
Open Interest: Number of outstanding contracts that have not been closed or settled.

Key takeaway: Leverage can amplify both profits and losses. Always understand margin requirements, contract expiry and your downside risk before trading.

πŸ“Š Futures Trading Explained: Key Concepts to Know Futures trading is more than predicting whether prices will rise or fall. Understanding margin and risk management is essential. Here are the key concepts: πŸ“ˆ Long vs Short: A long position benefits from rising prices; a short position benefits from falling prices. πŸ“¦ Contract Specifications: Lot size, contract size, expiry date and price tick define the contract. πŸ’° Initial Margin: Funds required to open a futures position. πŸ”„ Mark-to-Market (MTM): Daily settlement of gains and losses. ⚠️ Maintenance Margin: Minimum balance required to keep a position open. πŸ“ž Margin Call: A demand to add funds when your margin falls below the required level. πŸ’΅ Variation Margin: Funds paid or received to cover changes in a futures position’s value. πŸ“… Rollover: Closing an expiring contract and opening a later-dated one. πŸ“Š Open Interest: Number of outstanding contracts that have not been closed or settled. Key takeaway: Leverage can amplify both profits and losses. Always understand margin requirements, contract expiry and your downside risk before trading.
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